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Times are Changing for U.S. Malls

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U.S. malls are reeling as restaurant and retail tenants struggle to stay open for business.  Coresight Research data predicts that a quarter of U.S. malls could close over the next 3 to 5 years. Simon Property Group, America’s biggest mall owner, said that its 2020 fourth-quarter revenue dropped by 24%. However, experts think the Simon Property Group does not stand to be the biggest loser as its more distressed competitors will close their doors. Simon expects to see gains from its new additions of hotels and luxury residences.

Plans Resuscitated for Restoration Hardware Flagship Store

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The Birmingham planning board will meet on March 24 and review a proposal that revives plans to bring Restoration Hardware to downtown Birmingham.  A new 4-story building is proposed for the southwest corner of Old Woodward Avenue and Brown Street. The site is across the street from the new Daxton Hotel. The current buildings at the site would be demolished. After construction, the site would feature a new 54,000-square-foot building with Restoration Hardware as its anchor tenant. In addition, the development would have a top-floor restaurant and 24-space underground parking.

Weekly Brief – March 15

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A few random topics for your consideration this week:
  1. The topic of reuse of no longer desirable real estate is starting to appear more frequently in the media. As I have discussed in several updates, the use of real estate will continue to change as the market desires change. This week, Crain’s discusses the reuse of several sites, including the Holiday Inn in Farmington Hills (discussed here previously), as well as Fairlane Mall (discussed here previously) and Briarwood Mall (also discussed here previously). Watch for reuse of real estate to become a continuing topic as retail and office uses fade.
  2. I am hearing from some individuals who would be in a position to know that the foreclosure “boom” that has been predicted may be a much smaller boom than thought. A combination of governmental assistance, mortgage servicer leniency, and post-COVID economic recovery may make the expected boom more of a small bubble.
  3. The changing desirability of malls is a nationwide issue, and is impacting even one of the most storied and successful urban malls in the country, Water Tower Place in Chicago, which is losing one anchor (Macy’s), and watching a second anchor drastically reduce its footprint (American Girl Place). If Water Tower Place is being this dramatically impacted, perhaps pessimism about even the most successful malls in Michigan is warranted (perhaps even Somerset Collection, the fate of which I discussed previously).

Lansing-Based Developer Contracts the Linda Dresner Building

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Ron Boji, head of the Lansing-based Boji Group, has put the Linda Dresner Building in Birmingham under contract for an undisclosed amount. Boji has letters of intent from two national retailers. Although he isn’t disclosing who the retailers are, one of them will occupy the first floor of the Dresner building and the other will occupy the Maplewood Building he purchased last year. Boji Group will relocate its headquarters to the second floor of the Dresner building while continuing to maintain a presence in Lansing.

Weekly Brief – March 1, 2021

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This week’s discussion is about change. Although it is hopelessly cliche, the only constant in the real estate marketplace is change.

In past weeks, I have discussed the change that will be caused by the decline of bricks and mortar retail (especially malls), the rise of cannabis-related uses, the decline of video stores, and the long-term impact of electric and autonomous vehicles.

This week brings several stories about further changes. In Farmington Hills, we see a brand new hotel development quickly pivoting to senior housing. Also in Farmington Hills, we see vacant industrial space being redeveloped into multifamily housing.

At the national level, we see L Brands shifting its Bath & Body Works store mix away from mall locations. L Brands is also continuing to see its store count for Victoria’s Secret, another mall retailer, decline. And near Kalamazoo, we have another mall that is about to fail. All of these mall locations will be the subject of reuse.

Change is constant in real estate.

 

Crossroads Mall in Portage $77M Underwater, Deed-In-Lieu Possible

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The Crossroads Mall in Portage, Michigan (near Kalamazoo) has recently been valued at $22.6M. Unfortunately, the mall has $100M in mortgage debt. The owner is currently in discussions with its lender about a deed-in-lieu. Although stories about the decline of the regional mall are all too common, the decline of Crossroads has been stunning, as it was valued at $152M as recently as 2013.

In addition to the square footage covered by the mortgage, the mall is home to a (vacant) Sears store, as well as JC Penney and Macy’s anchors.

As mentioned in a recent Weekly Brief, the mall is dead.

Bath & Body Works Shifting Stores To Off-Mall Locations

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Retailer Bath & Body Works, which saw a surge in sales due to the COVID-19 pandemic, is planning to simultaneously open 49 off-mall locations, while closing 40 mall locations, in 2021. This will essentially keep the store count level but will shift stores away from malls to freestanding locations.

Mall Retailer Victoria’s Secret Closing Up To Fifty Stores In 2021

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Victoria’s Secret, a brand of L Brands, intends to close up to 50 stores in 2021. This is after the closure of 250 stores in 2020. L Brands continues to look for a solution to its Victoria’s Secret problem, including spinning the brand off to a private equity firm.

Briarwood Mall Vacancies Concern City Officials

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Briarwood Mall has 17 empty storefronts. Ann Arbor’s only mall has lost several businesses in the first quarter due to an increase in online shopping, high rents and the COVID-19 pandemic. City officials worry about the mall’s future and contemplate alternative uses for the large structure and parking lot. Multi-use ideas include entertainment venues like climbing gyms or laser tag, as well as a retirement community, office, and/or housing spaces that would guarantee consistent foot traffic.

Weekly Brief – February 8, 2021

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The mall is dead. Actually, in my opinion, the mall has been dead for several years. But no one has bothered to tell the mall.

COVID-19 may have dealt the final blow to malls. But the downward spiral began, quietly, on July 5, 1994: The founding of Amazon.

Amazon provides a virtually limitless selection of consumer products in one location. Gone are the days of leisurely strolling from store to store to find the perfect item. That item is a few clicks away on Amazon. The introduction of Amazon Prime in 2005, with two-day shipping, has accelerated the demise of bricks-and-mortar retail.

In the past year, over 20 national retailers have filed for bankruptcy protection. The next 12 months will be worse. Paycheck Protection Program loans and landlord leniency have merely kicked the can down the road for most retailers. In Metro Detroit, both Partridge Creek and (especially) Fairlane are doomed to fail as currently constituted. Lakeside Mall has already been sold to an owner (for less than $18/sf). The new owner is planning reuse involving “dynamic mixed-use destinations.”

Even the once-untouchable Somerset Collection has been impacted by vacancies, as well as the recent bankruptcy of one anchor (Neiman Marcus), and the potential bankruptcy of a second anchor (Macy’s). Even Nordstrom is not immune to the impact of online retailing, closing 15% of its full-line stores in 2020.

So what is to become of these once-proud regional malls? Expect reuses involving a mix of alternate uses (mega-churches, fitness centers), multi-family residential, and other less desirable uses (waterparks, etc.). One potential user is the villain itself: Amazon. Amazon could be a prime user of anchor space for fulfillment, order pickup, and small-scale retail (4-Star stores). But Amazon will not be paying the rent, and will not be drawing the foot traffic, that malls need to survive as currently constituted.

The mall is dead.